Want to be your own boss, but wary of going it alone? Here’s how business format franchising could be just what you’re looking for.
WHAT IS FRANCHISING?
Business format franchising is when a company (the franchisor) develops a successful trade name, brand and business system which it licences to an individual (the franchisee) who uses it to build up a successful business, usually operating in a defined geographical area. It’s a win-win scenario; the franchisor expands their brand using other people’s money, while the franchisee is given a business plan known to work, along with ongoing support and all the marketing advantages of operating under a well known name.
HOW IMPORTANT IS FRANCHISING TO THE BRITISH ECONOMY, PARTICULARLY NOW?
Very; it generated more than £11.4 billion in 2008. The chairman of trade body the British Franchise Association (bfa), Mike Goddard, told us: “These are successful businesses with a high percentage chance of success because of the very nature of the support they get through the franchising network. I really think you can’t understate the contribution franchising makes to the British economy.”
IS IT A SAFER WAY TO SET UP A BUSINESS?
According to Mike, a reputable franchising organisation will have a success hit rate of 90%-95%. “Nothing in business is guaranteed, but if you look at a similar statistic for non-franchised business, it’s much lower, below 50%,” he said. Also, since franchises are “proven” systems, banks are more likely to lend you money; they know reputable franchisors will provide the training, support and advice needed to maintain their brand.
ARE SERVICE LEAVERS PARTICULARLY SUITED TO FRANCHISING?
Mike Goddard believes Service leavers are disciplined, well motivated, not afraid of hard work and very good at following structures and procedures set down to get a job done. Those are qualities franchisors love in their franchisees.
WHAT KIND OF FRANCHISE SHOULD YOU GO FOR?
If you don’t like pizzas, don’t go for a pizza-making franchise; you need to choose something that you’ll still be happy doing five, 10 or even 15 years down the line. Go for a business you feel comfortable with and where you are confident the franchisor will provide an appropriate level of training and support. Whenever you can, speak to existing franchisees to get the inside story.
WHERE CAN I GET MORE INFORMATION?
Start at the bfa; franchisors which are full members have been vetted and passed an accreditation procedure which ensures they adhere to agreed ethical, legal and financial standards. However, you should still do your own research and diligence checking; after all, you’re potentially going to invest a lot of your money into a business and you need to minimise the risks, particularly if you have dependents.
The bfa-recognised whichfranchise.com website is also an excellent general source of information, and there are regular franchise magazines and exhibitions throughout the year.
Find out more;
British Franchise Association
01865 379 892, www.thebfa.org
0141 204 0050, www.whichfranchise.com
The most recent NatWest/BFA franchise survey (the 25th annual report on the sector) confirmed the following facts about business format franchising in the UK during 2008, when the British economy entered recession.
• Estimated annual turnover of the sector £11.4 billion, down 8% on 2007 (£12.4 billion) but still up 5% on 2006 (£10.8 billion).
• Number of business format franchisors: 809, up 3.6% on the previous year.
• 82% of franchisors believe business will improve or remain the same in the next 12 months.
• New entrants can expect to pay an average of £50,400 in franchise fees and other costs, down from £64,900 in 2007.
• Less than one third of franchisees are under 40 years old, compared with more than half in 1992.
• Roughly 467,000 people are directly employed by the franchising sector in the UK.
• Banks continue to be the most important overall source of finance.General Q&A on franchising.